This Week in Washington for April 13, 2020
By Dina ELlis
THE BIG PICTURE
For the latest advice for businesses dealing with the coronavirus, be sure to check out Paul Hastings’ targeted alert series:
Coronavirus cases in the United States continued to surge, with over 550,000 cases reported and over 20,000 lives lost. Despite these figures, top public health officials expressed optimism that infections may have peaked in some areas, and lowered the projected fatality count to 60k, in part due to the success of social distancing measures. Though many in the administration were eager to begin discussions about reopening the economy in May, others cautioned that reopening too quickly could lead to another spike in infections this summer. The President is expected to announce a task force of doctors and business leaders focused on how best to go about reopening the economy. In a briefing, the President described the decision about when to reopen as the biggest of his life.
The Small Business Administration’s systems overloaded early in the week as lenders rushed to process loan applications, causing delays and confusion for many companies. Treasury Secretary Steven Mnuchin warned the initial US$350B allocated for the Paycheck Protection Program was quickly becoming oversubscribed. Senate Republicans sought a more narrow solution, appropriating an additional US$250B to renew the program as part of an interim aid package. Democrats, however, favored a more comprehensive package, coupling additional funds for the PPP with funding for hospitals and local governments. Passage of additional legislation is further complicated by logistics, with members spread out across the country and many reluctant to travel back to DC. Negotiations between Congressional leadership and the White House continued over the weekend.
Wisconsin’s election was held as scheduled on Tuesday, after Governor Tony Evers’ last minute attempt to postpone in person voting was overturned by the state Supreme Court. Shortly after the state court’s decision was released, the U.S. Supreme Court ruled along ideological lines, amending a lower court decision regarding absentee ballots, clarifying that they needed to be postmarked by Election Day. Many Democrats slammed the decisions, which they described as needlessly risking the public health of citizens in the midst of a pandemic and used the situation to highlight their view about the need for a national vote-by-mail system to be in place for the November election. New Jersey, Virginia, and Georgia all announced they would postpone their primary votes due to public health concerns.
Acting Navy Secretary Thomas Modly resigned on Tuesday, following days of controversy that resulted from his firing of USS Theodore Roosevelt Captain Brett Crozier. Modly’s trip to Guam to address the sailors during which he called Crozier “too naive or too stupid” to lead proved to be the last straw. Crozier first drew the consternation of Modly after his letter warning about the spread of the virus on the ship was leaked to the media. To date, over 550 sailors aboard the nuclear-powered aircraft carrier have tested positive for COVID-19, including Crozier.
Other highlights of last week include:
Sen. Bernie Sanders (I-VT) ended his campaign for the presidency on Wednesday, making former Vice President Joe Biden the presumptive Democratic nominee.
An additional 6.6 million unemployment claims were reported last week, bringing the total to 16 million as the coronavirus pandemic continues to devastate the U.S. workforce.
Kayleigh McAnany will succeed Stephanie Grisham as the next White House Press Secretary.
Sen. Kelly Loeffler (R-GA) announced she would liquidate her individual stock shares, after questions were raised about the timing of some of her trades after Senate coronavirus briefings.
UK Prime Minister Boris Johnson was released from the hospital after a brief stay in the ICU due to his coronavirus infection.
LAST WEEK ON THE HILL
House Financial Services Committee Democrats Call on Regulators to Suspend CRA and Other Rulemakings Unrelated to COVID-19: On Wednesday, Committee Chairwoman Maxine Waters (D-CA), led a letter to OCC Comptroller Joseph Otting and FDIC Chair Jelena McWilliams, urging them to prioritize a strong response to the COVID-19 pandemic and suspend efforts to revise the Community Reinvestment Act (CRA) and any unrelated rulemakings. The letter was signed by every Democrat on the Committee. The lawmakers argued, “At a time when regulators should be working together to appropriately respond to this growing pandemic and keep our banking system safe and sound, unrelated rulemaking should be put on hold for the time being.”
Waters and Brown Call on Administration Officials to Step Up Efforts to Implement Defense Production Act: On Thursday, House Financial Services Committee Chair Maxine Waters (D-CA) and Senate Banking Committee Ranking Member Sherrod Brown (D-OH) sent a letter to Defense Secretary Mark Esper and HHS Secretary Alex Azar urging them to focus the use of resources provided by Congress in the CARES Act to bolster the production of urgently needed medical supplies and equipment using the powerful authorities of the Defense Production Act (DPA). The lawmakers wrote, “it is clear that it is a critical national priority and essential to saving American lives that the Department of Defense and the Department of Health and Human Services, working in close cooperation with one another and with FEMA and other federal agencies, do all they can to assist in the production, purchase and distribution of critically needed medical supplies, treatment and equipment.”
LEGISLATION INTRODUCED AND PROPOSED
H.R. 6461: Rep. Tulsi Gabbard (D-HI) introduced H.R. 6461, which would prohibit senior Government officials, including Members of Congress, from purchasing or selling certain investments.
H.R. 6470: Rep. Katie Porter (D-CA) introduced H.R. 6470, which would amend the Fair Credit Reporting Act to institute a 1-year waiting period before medical debt will be reported on a consumer's credit report and to remove paid-off and settled medical debts from credit reports that have been fully paid or settled, to amend the Fair Debt Collection Practices Act to provide a timetable for verification of medical debt and to increase the efficiency of credit markets with more perfect information.
Housing Assistance Fund: Senators Sherrod Brown (D-OH) and Jack Reed (D-RI) plan to propose legislation to provide a new $75 billion Housing Assistance Fund to help households struggling to make ends meet. The bill will be cosponsored by all Democratic members of the Senate Banking Committee.
THIS WEEK ON THE HILL
Congress remains in recess until April 20th.
Agencies Announce Changes to the Community Bank Leverage Ratio: On Monday, the Federal Reserve Board, FDIC, and OCC announced the issuance of two interim final rules to provide temporary relief to community banking organizations. The two rules will modify the community bank leverage ratio framework so that: (1) beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8 percent or greater and meets certain other criteria may elect to use the community bank leverage ratio framework; and (2) community banking organizations will have until January 1, 2022, before the community bank leverage ratio requirement is re-established at greater than 9 percent.
Agencies Issue Revised Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus: On Tuesday, the Federal Reserve, CFPB, FDIC, NCUA, and OCC issued a revised interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. The revised statement also provides the agencies’ views on consumer protection considerations. The revised statement clarifies the interaction between the interagency statement issued on March 22, 2020, and the temporary relief provided by Section 4013 of the CARES Act, which was signed into law on March 27, 2020. Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications as troubled debt restructurings (TDRs). The revised statement also provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital.
Federal Bank Regulators Issue Interim Final Rule for Paycheck Protection Program Facility: On Thursday, the Federal Reserve, FDIC, and OCC announced an interim final rule to encourage lending to small businesses through the Small Business Administration’s Paycheck Protection Program, or PPP. The interim final rule modifies the agencies’ capital rules to neutralize the regulatory capital effects of participating in the Federal Reserve’s PPP facility because there is no credit or market risk in association with PPP loans pledged to the facility. Consistent with the agencies’ current capital rules and the CARES Act requirements, the interim final rule also clarifies that a zero percent risk weight applies to loans covered by the PPP for capital purposes.
Federal Reserve Will Establish a Facility to Facilitate Lending to Small Businesses via the Small Business Administration's Paycheck Protection Program: On Monday, the Federal Reserve announced that, in order to facilitate lending to small businesses via the Small Business Administration's Paycheck Protection Program (PPP), it would establish a facility to provide term financing backed by PPP loans.
Treasury and Federal Reserve Board Announce New and Expanded Lending Programs to Provide up to $2.3 Trillion in Financing: On Thursday, Treasury Secretary Steven Mnuchin approved the establishment of a Main Street Business Lending Program and a Municipal Liquidity Facility to support the flow of credit to American workers, businesses, States, counties, and cities impacted by the coronavirus pandemic. The Federal Reserve announced that it would: (1) bolster the effectiveness of the Small Business Administration's Paycheck Protection Program (PPP) by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses; (2) ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program. The Department of the Treasury, using funding from the CARES Act, will provide $75 billion in equity to the facility; (3) increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset Backed Securities Loan Facility (TALF). These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury; and (4) help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.
New York Fed Opens the Registration Process for the Commercial Paper Funding Facility Ahead of April 14 Launch: On Monday, the Federal Reserve Bank of New York opened the registration process for the Commercial Paper Funding Facility (CPFF) and released an expanded set of FAQs pertaining to the facility’s operations. The CPFF will begin funding purchases of commercial paper on April 14, 2020. The CPFF provides a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase eligible three-month corporate, asset-backed, and municipal commercial paper from eligible issuers using financing provided by the New York Fed.
SEC Stresses Importance of Disclosures Despite Challenges Caused by COVID-19: SEC’s Chief Accountant Sagar Teotia acknowledged the myriad challenges accounting firms will face due to the coronavirus pandemic but emphasized the importance of high-quality financial reporting. He noted, “certain judgments and estimates can be challenging in an environment of uncertainty,” but stressed the “importance of required disclosures.” Chairman Jay Clayton echoed that message saying companies should avoid boilerplate disclosures and “provide as much information as is practicable regarding their current operating status and their future operating plans under various COVID-19-related mitigation conditions.”
SEC Office of Compliance Inspections and Examinations Publishes Risk Alerts: On Tuesday, the SEC’s Office of Compliance Inspections and Examinations (OCIE) issued two risk alerts: “Examinations that Focus on Compliance with Regulation Best Interest” and “Examinations that Focus on Compliance with Form CRS.” These risk alerts provide broker dealers and investment advisers with advance information about the expected scope and content of the initial examinations for compliance with Regulation Best Interest and Form CRS.
SEC Provides Temporary, Conditional Relief for Business Development Companies Making Investments in Small- and Medium-sized Businesses: On Wednesday, the SEC announced that it is providing temporary, conditional exemptive relief for business development companies (BDCs) to enable them to make additional investments in small- and medium-sized businesses, including those with operations affected by COVID-19. The relief will provide additional flexibility for BDCs to issue and sell senior securities in order to provide capital to such companies and to participate in investments in these companies alongside certain private funds that are affiliated with the BDC. The relief is subject to investor protection conditions, including specific requirements for obtaining an independent evaluation of the issuances’ terms and approval by a majority of a BDC’s independent board members.
OCC to Forge Ahead with CRA Overhaul: In a statement on Thursday, Comptroller Joseph Otting indicated that the agency planned to move forward with a proposal to overhaul the Community Reinvestment Act (CRA) this year. Otting said, “We will work toward issuing a final rule during the first half of this year. Further delay would only prevent these valuable resources from reaching those who need them most in this time of national emergency.” In response, Senate Banking Committee Ranking Member Sherrod Brown (D-OH) led 42 Senate Democrats in calling on Otting to rescind the proposal, saying it weakens communities and “threatens to undermine more than 40 years of access to sustainable mortgage credit, small business loans, community development, and partnerships between financial institutions and the communities they serve.”
CFTC Issues COVID-19 Customer Advisory on Fee Scams: On Monday, the CFTC issued a Customer Advisory informing the public to be on alert for frauds seeking to profit from recent job losses due to the COVID-19 (coronavirus) pandemic. The alert warned that these frauds may seek to convince customers they can earn unrealistically high profits from home but later force them to pay excessive “fees” and “taxes” to get their supposed earnings. The frauds typically involve unregistered brokers selling binary options, foreign exchange (forex) programs, and cryptocurrencies. The brokers primarily use social media and messaging apps to target people who have lost their jobs and are looking for replacement income.
Treasury Underscores Commitment to Global Flow of Humanitarian Aid in Face of COVID-19 Pandemic: On Thursday, the Treasury Department issued a statement affirming its continued commitment to humanitarian aid. It emphasized the importance of ensuring that the international flow of humanitarian aid continues through legitimate and transparent channels. Treasury noted that it supports the critical work of governments, international organizations, non-profit organizations, and individuals delivering medical supplies and humanitarian assistance to areas affected by COVID-19, including Iran, Venezuela, Syria, and North Korea.
IRS Extends More Tax Deadlines to Cover Individuals, Trusts, Estates, Corporations, and Others: On Thursday, the Department of the Treasury and the Internal Revenue Service extends additional key tax deadlines for individuals and businesses. Last month, the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. Thursday’s action expands this relief—individuals, trusts, estates, corporations, and other non-corporate tax filers qualify for the extra time. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due.
CFPB Announces Guidance on Remittance Transfers during COVID-19 Pandemic: On Friday, in order to minimize the impact of the pandemic on the remittances market, the Bureau issued a policy statement that will enable insured institutions to continue to focus on the immediate needs of their customers by taking a flexible approach to the Bureau’s supervision and enforcement of remittance transfers.
FinCEN Provides Further Information to Financial Institutions in Response to the Coronavirus: FinCEN updated its March 16 guidance, providing additional information to assist financial institutions in complying with their Bank Secrecy Act (BSA) obligations during the COVID-19 pandemic and announced a direct contact mechanism for urgent COVID-19-related issues.
EXIM Reduces Fees, Streamlines Delegated Authority, and Fast Track Loans for Small Businesses: On Tuesday, the U.S. Export-Import Bank announced changes to the fee structure of its Delegated Authority (DA) loans and Fast Track Loans. This change will give small businesses better transparency into the fee structure and will lower the fee rate by an average of 10 basis points. The planned change will phase in over the month of April, fully taking effect on May 1. The change is applicable to all DA and Fast Track Loans whose effective date is April 1, 2020, and thereafter. All DA and Fast Track Loans (including multi-year and extensions) whose effective dates precede April 1, 2020, will remain under the old fee structure. Non-DA loans and deals approved by the Board of Directors will remain under the old fee structure at the present time.
EXIM Announces Assistance to Italy in Fighting the COVID-19 Pandemic and Supporting the Recovery of the Italian Economy: On Saturday, the U.S. Export-Import Bank said that, while it continues to prioritize the needs of the American people first and foremost, it also will make its applicable programs and authorities available to support Italy’s economic recovery from COVID-19, the coronavirus pandemic, as ordered in the Memorandum issued late Friday by the President. EXIM President and Chair Kimberly Reed said, “The United States is a nation of generosity and compassion, and EXIM stands ready to help the people of Italy who face a long road ahead to economic recovery.”
Education Department Authorizes New Funding Flexibilities to Support Continued Learning During COVID-19 National Emergency: On Monday, Education Secretary Betsy DeVos announced a new streamlined process for providing states funding flexibilities to best meet the needs of students and educators during the
COVID-19 national emergency. The new flexibilities, authorized under the CARES Act, allow schools to repurpose existing K-12 education funds for technology infrastructure and teacher training on distance learning, among other flexibilities to move resources to areas of highest need during the national emergency.
Education Department Delivers More Than US$6B in Emergency Cash Grants for College Students Impacted by Coronavirus Outbreak: On Thursday, Education Secretary Betsy DeVos announced that more than US$6B of stimulus funds will be distributed immediately to colleges and universities to provide direct emergency cash grants to college students whose lives and educations have been disrupted by the coronavirus outbreak. Colleges and universities are required to utilize the funds made available to provide cash grants to students for expenses related to disruptions to their educations, including things like course materials and technology as well as food, housing, health care, and childcare.
FEMA-CBP Joint Statement on Defense Production Act for PPE: On Wednesday, at the direction of the President to use the Defense Production Act to keep scarce medical resources within the United States for domestic use, FEMA announced that it was coordinated with CBP to prevent domestic brokers, distributors, and other intermediaries from diverting these critical medical resources overseas. To accomplish this, CBP will detain shipments of the PPE specified in the President’s Memorandum while FEMA determines whether to return the PPE for use within the United States; to purchase the PPE on behalf of the United States; or allow it to be exported.
COMINGS AND GOINGS AT THE AGENCIES
Sen. Schumer Announces Appointment of Bharat Ramamurti to Serve on New Congressional Oversight Commission: On Monday, Senate Minority Leader Chuck Schumer (D-NY) announced plans to appoint Bharat Ramamurti to the Congressional Oversight Commission, one of multiple layers of oversight included in the CARES Act. Bharat Ramamurti most recently served as Deputy Policy Director for Economic Policy on the presidential campaign of U.S. Senator Elizabeth Warren (D-MA).
President Trump Removes Defense Department IG Set to Chair Oversight Committee: On Tuesday, the President removed acting Defense Department Inspector General Glenn Fine, who had been named as chair of the Pandemic Response Accountability Committee. Sen. Sherrod Brown criticized the move saying, “This inexplicable action raises even more questions about how the president is handling this crisis, what he’s potentially hiding, and how Congress will conduct essential oversight.”
Federal Reserve Board Accepting Applications for Its Community Advisory Council: On Monday, the Federal Reserve announced that it is accepting applications from individuals who wish to be considered for membership on the Community Advisory Council (CAC). The CAC was formed in 2015. It advises the Board on issues affecting consumers and communities and complements two of the Board's other advisory councils whose members represent depository institutions—the Federal Advisory Council and the Community Depository Institutions Advisory Council.
Federal Circuit Rules Federal Reserve Banks Can Challenge Patents: In a decision released on Friday, the Federal Circuit found that Federal Reserve banks are “distinct from the government” under the America Invents Act and therefore can challenge patents at the Patent Trial and Appeal Board.
OTHER NOTEWORTHY ITEMS
Governors Call for US$500B in Stabilization Funding: Maryland Governor Larry Hogan and New York Governor Andrew Cuomo jointly called for Congress to give states US$500B in funding to “ stabilize state budgets and to make sure states have the resources to battle the virus and provide the services the American people rely on.”
Democrats Urge Fed to End Capital Distributions Like Stock Buybacks, Dividends, and Executive Bonuses: On Thursday, Senators Sherrod Brown (D-OH), Brian Schatz (D-HI), and Elizabeth Warren (D-MA) sent a letter to Federal Reserve Chairman Jerome Powell, calling for the Fed to end capital distributions like stock buybacks, dividends, and executive bonuses as the economy recovers from the Coronavirus pandemic. The Senators urged the Fed to do more to help small business owners and hardworking families instead of allowing Wall Street to take advantage of the crisis to skirt important financial protections. The Senators argued, “Ending capital distributions now will refocus these banks on their core mission: lending into their communities, a critical goal during these difficult economic times.”